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tv   Alexander Hamilton and Fiscal Responsibility  CSPAN  March 3, 2018 8:40am-9:54am EST

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history tv all weekend, every weekend on c-span3. next, alexander hamilton of thehy and chairman museum, richard sylla, discusses hamilton's missives on the national debt and fiscal responsibility. he compares those views to the greater history of american economic policy. this talk was cohosted by the museum of american finance and alexander hamilton awareness society. it is an hour and 10 minutes. >> good afternoon, everyone, welcome to the museum of american finance. i am david cowen, the president. our partner in today's event is the alexander hamilton awareness society, which is a group you turn to for all things hamilton. the leadership is here today. we also want to thank and welcome john herzog, who was the
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founder of this museum and chair emeritus. i will turn it over to the man who will introduce our chairman of the board, professor richard sylla. sylla: hello, everyone. -- rand: hello, everyone. it is nice to see so many people here celebrating alexander's 261st birthday. we are augmenting interpretive programming there. special thanks to david callan american finance staff for hosting this program. this is the seventh year where we partnered with both exhibits. we thank museum for that.
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c-span's american history tv continues its valuable role in sharing the key historical record nationwide. three initiatives have happened in the last year in part of celebrating hamilton's birthday today to ensure a more accurate understanding of who he was. his life and his legacy. a taste of history, the famous award-winning city tavern in philadelphia. that had all of the founding fathers, except for him -- that has been remedied. another moment in june of last year, alexander hamilton was inducted into the new york state writers hall of fame. that was very positive. and we have some major news for the first time to be announced publicly. new discoveries related to alexander hamilton's life are now being posted weekly by national hamilton scholar michael e. newton, including the oldest known hamilton documents before the probate in 1768 and
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stephen's letter in 1769. biological details of hamilton's maternal grandfather are available. interestingly, on st. croix, a 10-year-old alexander hamilton was introduced to dueling. lastly, just posted a couple of days ago, is a detailed sourcing of funding of hamilton's education in new jersey and new york. it was not because of the hurricane letter he wrote. it was not a reverend. if you go to, you can see new discoveries are going to be going on for months and months. we are very excited about that. i want to encourage you to see hamilton's home in upper
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manhattan. it has been restored. our speaker now. richard sylla is professor emeritus of economics at the stern school of business at new york university. where from 1990 to 2015 -- that is 25 years -- he was henry kaufman professor of the history of financial institutions. dr. sylla is also research associate of the national bureau of economic research. professor sylla received his ba, ma, and phd from harvard. his research focuses on the financial history of the united states in comparative contexts. he is the author of a number of books, including "alexander hamilton: the illustrated biography," which is beautiful. absolutely gorgeous with lots of andt photo imagery inside, so people like myself can understand the financial dimension of it. will be signing those
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after the question and answer today. he has also written "the american capital markets: 1846-1914." he has co-authored "alexander hamilton on finance, credit, and that," which is going to be available this year. he co-edited the economic policy of the 1790's -- a very good decade to study -- as well as articles, essays, and reviews on business, economic, and financial history. but wait, there is more. dr. sylla is a former editor of the journal of economic history. he has served as the chairman of the board of trustees and in the association of quantitative economic historians. he was president of the economic history association. he served as president of the business history conference, the leading professional association of business historians, which presented their lifetime achievement award
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to him in 2011. currently, dr. sylla serves as chairman of the board of trustees of the museum of american finance. the smithsonian museum located in new york, where we are today. we are privileged today to learn about hamilton on financial responsibility, with one of our nations foremost financial and economic historians. ladies and gentlemen, dr. richard sylla. [applause] dr. sylla: thank you, rand, for that kind introduction. thank all of you for coming out on hamilton's 261st birthday.
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thank you to the a.h.a. society and museum for sponsoring the event. it is an honor to be here. my topic is timely. as congress passed a tax cut, that is estimated will add $1.5 trillion dollars to the national debt, which is currently $25 trillion, my topic is hamilton on fiscal responsibility. whatever will be the merits of the recent tax cut, and i think there are some, there is little doubt hamilton would regard the law as not passing the test of fiscal responsibility. indeed, i think hamilton would regard many of the fiscal policies and some of the monetary policies of the past half-century, since the middle
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of the 1960's, i would say, as not passing the fiscal and monetary responsibility tests as he defined those tests in the early to mid-1790's, during and after his tenure as our first secretary of the treasury. there is probably a good side to that, which i will get back to, but maybe before 50 years ago, the first part of our history, maybe the policies would have passed hamilton's tests of fiscal responsibility. although it is a matter of your arithmetic, you may be surprised when i tell you, i have lived through slightly more than 1/3 of u.s. history. [laughter] dr. sylla: since george washington took office in 1789. anyone in his or her late 70's could probably say the same thing. we have a young country.
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even someone born in 1940, as i was, during world war ii, has lived 77 years. if you go back to 1789, when washington famously took the oath of office, what is it -- in 2015, it was 75 years from 1790-1865, the end of the civil war. then it was another 75 years until i was born. in 2015, i could say i lived through 1/3 of u.s. history, under the constitution. now that it is 2017, and i have lived through more than 1/3 of u.s. history. when i look at some of her the monetary policies over the past half-century, i am talking about a period that i witnessed in my adult life, and as a historian, i have studied quite a bit of history in those 150 years when i wasn't around.
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you know, up to 1940. i concluded that for the most part, that period from the 1790's into the middle of the 1960's, was a long time of pretty much fiscal responsibility as hamilton defined it. i will argue that here today. to set the stage, let me note that in 1965, when i was a 25-year-old phd student, our national debt, the debt built up over 175 years of history was $317 billion. that sounds like a pretty big number. i guess it is three times jeff bezos' net worth. [laughter] dr. sylla: so it is a big number. by 1981, i was 41 years old.
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so in 1965, the national debt is $317 billion. by 1981, it had tripled to almost $1 trillion. 1990 -- i am 50 years old. moved to new york to teach it tripled again, to $3.2 trillion. that was just in nine years. by 2008, it tripled again, $10 $3.2the 1990 level, 3.2 love trillion in 1992 $10 trillion.
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since 2008, it has doubled to more than $20 trillion in another nine years. $317 billion of national debt is now over $20 trillion. if you do the arithmetic again, that means the national debt has increased 63-fold from that time 50 years ago, when i was writing my phd thesis. rather startling. i know some of you are thinking, well, there has been a lot of inflation. we will get back to that. i won't neglect to tell you something about debt-gdp ratios later on. in my discussion. rand, in his kind introduction, mentioned the alexander hamilton illustrated biography that has been out a little more than a year now. he also mentioned it, but i will reiterate it, that david cowen and i have a book and press right now, "alexander hamilton on finance, credit, and debt." this is a collection of his
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18 key documents that hamilton wrote over the course of his career related to finance. david and i have annotated every document as to why it is significant. there are a lot of questions about hamilton's writings, but the writings on finance have not been featured as much as they might have been given. at least david and i think was the importance of hamilton's work. hardly anything he did was more important than his financial reforms. since we are bridged many of these documents to eliminate the a leader would bore today -- i mean, you wouldn't want to read the 10 pages of tax increases hamilton has in some of his documents. wouldn't you get tired of that? but to do the abridging to make
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it more interesting to a modern reader, we had to read what hamilton wrote very carefully. as i did so, it became even clearer that hamilton had these very definite ideas, clear and consistent ideas that started when he was very young, and he maintained them throughout his career. the first relevant document was from 1781, when he was a soldier marching in the military at yorktown. the last one is from 1795, which he wrote a few months after he stepped down from treasury secretary. hist clearest analysis on the subject of fiscal responsibility and why it proves difficult to
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achieve and how it can be achieved came january 16, 1795, in an address to congress on public credit. he was a private citizen again, having resigned as of january 31, 1795. this is a rather long report , and it deals with finance and debt management, technical subjects that are often ignored. by historians and biographers. i am sure there are a bunch of hamiltonians in the room. i am not sure how many of you have dwelled on this long technical report. most people don't say a lot about it for a couple of reasons. one, it is this technical finance stuff. and secondly, the report proves that the charges of hamilton's political opponents, jefferson , madison, and others, they charged that hamilton wanted to perpetuate and grow the national debt and use it to manipulate congress and the markets.
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that was a charge leveled against hamilton. this report shows those charges of jefferson, madison, and others were so much "fake news." [laughter] dr. sylla: i wrote about earlier this week, and then i read the "new york times" this morning, "fake news" is word or the phrase of the year. a few years ago, it was "selfie." "fake news," which i just use as an expression, is in fact last year's word or phrase of the year. i have page proofs from the forthcoming book. i wanted to show you what hamilton actually said about the problems of fiscal responsibility that he faced.
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this is from the 1790's, january 1795. washington had just given the state of the union address, and which was just called the president's message them. later on, it became called state of the union address, and hamilton says, there is no sentiment which can better deserve the serious attention of the legislators of the country than the one expressed in the speech of the president, which indicates the danger to every government from the progressive accumulation of debt. a tendency to it, hamilton says, is perhaps the natural disease -- he capitalized that -- of all government. it is not easy to conceive anything more likely that could then this to lead to great and convulsive revolutions of empire. on the one hand, creating new causes of expenditure, i will paraphrase now -- grow and grow. there is always new things to spend money on. on the other hand, there is a
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general propensity and those he who administer the affairs of the government to shift a off the burden. a propensity which may be expected to be strong. in other words, the more people get to vote for things, the more they will vote for "don't tax me let's borrow it and go further down the road." hamilton says to extinguish a debt which exists is almost always favored by public feeling and opinion. to pay taxes for one or the other purpose, the only means of avoiding the evil, if you want to extinguish the debt, hamilton says, you have to pay more taxes. this is always more or less unpopular. spending is popular. paying taxes is unpopular.
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hamilton says these are contradictions in human nature. let's see, as we go on a little bit -- it is no uncommon spectacle to see the same ends clamoring for occasion of expense. they have to be in unison with the present humor of the community, claiming against the public debt. for the production of it as an abstract basis. yet the imminent against every plan of taxation, which is proposed to discharge old debts. hamilton called this "these un-handsome arts." to say i want to reduce the national debt, but by golly, don't waste my taxes. through artificial embarrassment in the way of administrators of the government, and they serve to promote the accumulation of
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debt by leaving that which at any time exists without adequate provision for its reimbursement. by preventing or delaying new with new energy when new taxes or expenses occur. the consequences of the public debt swells, and the burdens of the people gradually increase such a state of things breed disorder in the whole political economy. convulsions and revolutions of government are a natural obscuring -- our natural offspring for it. there can be no more sacred obligation on the public agents of the nation than to guard with provident foresight against so mischievous results. he refers to his earlier plan, improve efficacies of the favorable situation in which the united states stood at the time for extinguishing with
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whole or anyarity of the country and for laying immortality to public credit. he didn't get to his actual plan, but that will become apparent in some of the earlier documents. he was referring back to his plan. hamilton's solution to the problem of fiscal responsibility is quite simple. what you need to do is couple all of the borrowing measures with revenue measures to pay the interest on the money borrowed, plus a little bit more. with that little bit more, depending on how much more, it will allow the debt to be retired in some number of years. we are all pretty familiar with this. many of us have taken out a think ouroan and we
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income is sufficient to pay the interest on the debt sprint we are paying a little bit extra to not just pay the interest on a -- it but to have it go away in 30 years. hamilton's idea was this is the way the government should run itself as well. couple borrowing revenues with -- couple borrowing measures with revenue measures to pay a little bit more. this is how to be fiscally responsible and make public credit immortal. .hat was hamilton's term for it he wanted public credit to always be there when we needed it, when an opportunity arose, like louisiana, or to get through the civil war. hamilton's fiscal responsibility can be traced to four documents in our book. 1781, the first one he was would tenant colonel in the
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-- he was lieutenant colonel in the continental army marching toward yorktown. he was somewhere between new york and yorktown, marching with washington's army. he is a 24-year-old soldier now. he mentions one of his great insights, the great defect of the confederation, is that it gives the united states no property, no revenue, and nor the means of requiring -- of acquiring it. he says that is a bad idea. says while congress will depend on occasional grants of several states at the expense of the federal government, and will -- it can neither have dignity
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or credit for it credit. -- credit. credit supposes specific and permanent funds for the payment of interest, with the moral certainty of the financial redemption of the principal. it will probably require more on account of the general dividends as a result of the past disorder in finances. it will appropriate funds for redemption of the principle of an indeterminate period. hamilton is a 24-year-old soldier but he is like a professor. he adds a footnote to his thought. germ oftains the hamilton's later thoughts on fiscal responsibility. indeed be an good restraint on the spirit of running in debt to which apt to bes are too
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affective to make it sufficient that they shall be obliged to appropriate funds for the payment of principal as well as interest." in one sentence, that is hamilton's fiscal responsibility. when you borrow money for whatever reason, you should taxes tote, increase pay the interest on the money you borrowed, and a little bit more so you are able to repay the principal at some point. that is hamilton in 1781. basically as a 24-year-old soldier wondering what is going wrong with the country's finances, he hits on the solution to the problem. nine years later, in the famous report on public credit, january
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1790 come out we have an original printing of it here in the museum's collection. there are several paragraphs to the idea of fiscal responsibility. fairly well-known passages. he says in the january 1790 report, persuasive as the secretary is, and he is now first secretary treasury of the united states, persuaded as the secretary is that the proper funding will render it a national blessing, yet he is so far from exceeding the position in the latitude in which this is sometimes laid down that public benefited that he, meaning hamilton, ardently wishes to see it incorporated in
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the fundamental maxim in the system of public credit in the united states, that the creation of the debt should always be accompanied with the means of extinguishment. he presumes that is difficult to conceive a situation in which there may not be an adherence to the maxim. this may befeels attempted by the united states and they may commence their measures for the establishment of credit. in his great report, he is calling for the assumption of state debts and restructuring of the national debt. he reiterates what he can't do -- what he had in the footnote some years earlier. between 1790 in 1795, hamilton
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did not succeed in getting congress to adopt his measure for making public credit immortal. his country's financial situation had improved greatly thanks in large measure to hamilton's financial reforms. the united states started growing rapidly. rose in actually 1790-1795. but i will tell you later it went down a great deal in terms of gdp ratio. the debt rose a little bit under hamilton's administration, but the gdp for much faster. the debt actually rose, but many congressmen, and others, complained that the debt was not being produced even though it's their own behavior and the failure to adopt hamilton's
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structures to make public credit immortal that was responsible. congressman then just like congressmen today said, i do not like our large national that come i want you to reduce the debt, and someone says the way to do that is to raise taxes. "oh no, we can't raise taxes, cut expenditures. but dammit, get us out of this debt!" hamilton's frustrations about that came out in the 1795 report. the fourth and final document is his defense of the funding system. which is incomplete. it was not even published for another century.
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the incomplete document discusses two features of hamilton system. first, the reasons for assuming .he state that -- state debts page after page of why he did it, the way he did it -- second, the reasons for funding the national debt. it means dedicating specific service to debt before they could be used for anything house. bondholders the that these particular government revenues will first go to paying the interest on the debt. funding had been attacked by hamilton's enemies and political opponents. one was the charge of funding, by making things credit -- making credit available on it it encouraged
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more debt. a a goodd not have public credit. your own private credit should not be good. most of us think the opposite. but you are wrong, you should not have a good credit, jefferson, and madison and others said. because that will encourage you and get you into trouble. hamilton had no trouble undercutting such arguments. as he said in this document, an analysis of this argument proves that it turns upon the abuses of a thing intrinsically good. meaning, good, excellent public credit. this is an important point. i would argue over the last 50 years, we have been abusing public credit. public credit is intrinsically good, but it can be abused. hamilton foresaw that.
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u.s. would enjoy an excellent credit for the next two centuries and could easily borrow money to enlarge the territory. for example, we enlarged the territory by borrowing the money to pay somebody for the territory. hamilton was right, i think, but he may have been too optimistic, that excellent credit might not be abused. a case can be made that we have been abusing our credit for the past half-century. 63 fold in our national debt may be evidence of that. how has it happened? is happened precisely for the reasons hamilton has outlined in his january 1795 report.
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president's appropriate more money to defend us from our enemies and pay us entitlements, such as social security and medicare, but if anyone suggest we ought to raise taxes to pay for these things, congresses and president pleases us by saying, we are already overtaxed. we cannot raise the taxes to pay for these things. for the past 50 years and this is history i have seen, presidents have argued for cutting taxes even as they spend more. at the same time, they complain about the national debt being too large. they even shut down the government to win -- when the debt bumps up against the debt ceiling congress has enacted,
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-- it is a charade of fiscal responsibility. because the debt ceiling makes it impossible to pay for everything congress has offered. when are we going to bump into the charade again, this month? hamilton called these things, ." ese on handsome arts these arts serve to promote the accumulation of debt. the weight becomes intolerable. eventually, he forecasted revolutions and and convulsions will take place. there can be no more sacred obligation on the public agents of a nation then to guard with provident foresight and inflexible perseverance against those mischievous results. the united states managed to
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avoid these mischievous results for 175 years, but not quite in the way hamilton foresaw and recommended. he wanted to couple the borrowing of state and local authorities with revenue measures to retire the principal eventually. the history of the u.s. national debt shows the interest is paid, which is why we have such excellent credit in the world, -- when there is turmoil in the world economy, people sell things and by u.s. government debt because as a 200 some year history of never missing an interest payment, but we always pay the principal back. this is by economic growth. hamilton did see that as the economy grows, whatever the government is taxing, it is going to generate more revenue.
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through most of the history, we manage debt pretty well, by growing the economy. that led to a larger economic base, so that we were able to pay down debts. what we did have until the middle of the 1960's was a certain amount of restraint. up in wars,ld go but the economy would grow and that would reduce the burden of it. that is where we get to the notion of the debt gdp ratio which is an important thing to look at. i'm going to give you some debt-gdp ratio. in 1790, the debt was $77 million. that was the debt hamilton restructured.
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and it was 41% of the gdp. the debt income ratio was 41%. the debt actually rose to $84 million by 1795, when hamilton stepped down. but the gdp ratio fell to 22%, not 41%, because of economic growth. a quick tour. in 1811, because jefferson and madison had cut expenditures, maybe a little too much. in 1811, the debt-gdp ratio was only 6%. but the war of 1812 raised the debt to a much higher level. but the debt-gdp ratio was 14%. from debt gdp ratio from 6% to 14%. many of you know that in the middle of the 1830's, this ratio went to zero. and that is because -- you see the pattern. you borrow a lot of money during war, you did that and the
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american revolution and war of 1812, but then after the war, the economy grows, and the takes its cut of a growing economy -- and the government takes its cut of a growing economy. and because of restraint and spending, it reduces debt income ratio. by 1860 the debt income ratio was 1%. the debt in 1860 was 1% of the gdp in 1860. the civil war gave us a $2.8 billion of debt. at the end of the war the debt gdp ratio was 30%. by 1893, because of a growing economy and reluctance of government to spend wildly, the civil war-debt gdp ratio was down to 6%. by 1914, the debt-gdp ratio was only 3%. 1919, world war i, up to 32%.
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from 3% to 33%. by 1930, it is down to 18%. the depression raised it to 43%. in 1939 the debt gdp ratio went to 43%. in 1939, a lot of money was borrowed and the economy didn't grow much in that period. 43% was like hamilton's 41%. 1946, we get the all time peak. waterboard to raised the debt gdp ratio to 118%. in 1946 when i was six years old, the national debt was larger than the gdp. even though in 1945 the united states gdp was half of the world's gdp. so we borrowed a lot of money in world war ii. but by 1959 when i was a
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freshman at harvard, that 118% debt-gdp ratio was down to 54%. not because the debt went down, it didn't go down. the debt actually went up a little, but the economy grew up a lot. some of us old-timers remember the 1950's were really a pretty good economic time. by 1965, it is down to 43%. 1790, the gdp ratio was 41%. 1965, i am 25 years old writing my phd thesis, it is down to 43%. this is when i think things start to go wrong, but it did not become apparent right away. because the ratio went down in the 1970's, at 43%. it was down to 31% by 1981, even though the national debt had tripled in that period.
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those of you that are old enough to remember the 1970's, there were very high inflation rates. so what we were doing then was inflating ourselves out of debt, essentially. and the national debt tripled. but the inflation rate was very high. gdp grew faster than the debt did even though the debt tripled so the ratio went down to 33%. -- 31%. inflating your way out of debt is not something hamilton would have approved of. since 1981, the debt-gdp ratio is 31%. 1986 it is 46%. 1990 it is 54%. this is the period when some of us will remember ronald reagan
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wanted to increase defense spending and have tax cuts. and his friend tip o'neill, he says, i will go along with your increase in defense spending, provided you don't cut any of our pet democratic programs. hamilton talked about this. so the debt-gdp ratio by 1990 had gone up from 31% to 54%. by 1993, we had the gulf war. it was up to 64%. actually, 1993 to 2001, i think clinton and newt gingrich were more responsible. they controlled spending and the economy grew. so the debt-gdp ratio fell from 64% in 1993 to 55% in 2001.
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so we get to our own century now. 2005, it is up to 60%. remember george bush cut taxes? 2008, it is up to 69%. 2009 because of the financial crisis, it is up to 83%. 2013, the debt gdp ratio is 100%. 2016, 104%. 2017, we don't know yet. fairly recent. but it is like 105%. this is what i mean about the last 50 years, showing signs of fiscal irresponsibility. so i think now that hamilton warned us against this. he had a consistent way of trying to keep us out of debt. even if we didn't enact the revenue measures to a company specific borrowing, we were
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bailed out of running up large debts and so on by the growth of our economy. one thing that bothers me now is we are running up our debt faster but people are saying our growth rate is likely to be lower. we cannot count on 3% or 4% growth to bail us out of our fiscal follies if the economy only grows at 2%. the other thing that bothers me about our current situation is that interest rates are extremely low. and that has made it easy for us to not sort of say that the budget is being blown by paying interest. but let us suppose that interest rates rise by maybe only 1%. when you have $20 trillion of debt, 1% increase is an extra $200 billion that has to be paid. the federal government has to find how it is going to do this. raise taxes? that will probably issue more
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debt and that could be dangerous. so i hope i have not spoiled your day. [laughter] but i think it is something we ought to think about. on hamilton's 261st birthday. i think we should remind ourselves about his analysis and warnings and maybe do something about it before it is too late. and i haven't actually gotten into the full dimensions of the problem we have. i scare you a little bit with the rapidly rising debt gdp ratio but there are certain things, like underfunded liabilities, medicare, that are not really part of the national debt. that could be an even bigger problem. so i think we have kind of gotten ourselves into a fiscally irresponsible situation. and as we often do, we look back to the founders of our country, those great men who give us some guidance, to get our act back
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together a little more. thank you very much for your attention. i am willing to take some questions now. [applause] the q&a is here. c-span canur mic so capture you. >> in the last few hundred years, you imply these are different times of different cultural expectations. there are times when society elects people who do not want to raise debt or taxes, and there are times like now, when the kind of person you send to congress does not seem to fear debt as in the past. certainly hamilton was less fearful of debt than his friends, quote unquote jefferson and others. can you speak about the various times in the last 200 years when
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the temperament of the community, the country, affected the debt? dr. sylla: hamilton thought the debt -- bob wright talked about this last summer -- hamilton more than once said the national debt, provided it is not excessive and well-managed, can be a national blessing. that was an odd idea for the 18th century. people like adam smith and david hume and other writers in the 18th century did not like this at all. jefferson was much more attuned to the prevailing view. but hamilton knew that debt is just the other side of credit. and credit is really a good thing. hamilton saw credit as a new power in the world. he actually says that if we don't have a good credit in the united states and britain does and maybe france does, we are vulnerable for them to take us
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over. credit is like a weapon in a war. so hamilton did have a different idea from most people. they made fun of it. what a terrible idea. hamilton probably should have said credit is a blessing, but credit and debt are the same thing, two sides of the coin. the temperament at various times -- i think that the pattern we had for 175 years of u.s. history is, yes, we are going to run up the debt in wars or if we can double the size of the country in the louisiana purchase. but when we do that, afterwards we are going to be fiscally responsible, restrained spending, let the economy grow. that was the way we ran our country until the 1960's.
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yes, we would incur debts in wartime and the highest ever debt-gdp ratio was in 1946, 118% in world war ii. but it is cut in half. i think something changed in the 1960's. maybe we can all collectively figure it out, i don't know exactly what it was. but we began to not care that much. whether the government financed itself by issuing debt. it didn't make any difference whether you raise taxes or borrowed money. it is kind of a far-fetched idea but it was kind of saying that whenever the government borrowed a lot of money to finance itself , we all knew they would come and tax us later on so we would save her money. we anticipated taxes going up whenever the government financed itself so we would save money right away.
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it is an interesting economic concept but i don't think it actually works in practice. so there is a change. the first 25 years of my life, we seem to be doing the same things we did through our previous almost two centuries. in the last 50 years of my life we are doing something else. i see the change, but what is behind it is what you're getting at. maybe it is something we should think about. maybe somebody else will have a notion. i don't know what the precise answer is. >> thanks for coming today. the question is, can you discuss the crowding out effect and what influence that has on the private sector? and the second question is and at what point does the government borrow too much? is it 130% of gdp when it crowds of the private investment and tanks us?
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dr. sylla: i think crowding out is, you know -- i have to say that the run-up of the debt during and after the financial crisis, when the unemployment rate was rising and we were having close to 10% unemployment and the economy was in the great recession, you don't have to worry about crowding out in those instances. that is a keynesian idea. most of us economists now say the great recession lasted longer than it should have and our growth has been slower since the crisis because the obama administration did not have a bigger stimulus. they added what, $700 billion or something? it probably should have been bigger. were only an, they office for a few months and they did not realize how bad the recession was going to be. so i don't think you have to
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worry about crowding out when the economy has a lot of unemployment in a recession. but fast forward to now. now we have pretty much full employment and the economy is growing at 3%. this is not the time when you want to have a tax cut financed by higher debt. i think in this situation, at full employment, if the government over the next decade or so runs up the debt $1.5 trillion more than it would have, that money is not going to be available in markets for private investment. so crowding out is a problem, but it is not a problem all the time. it is a problem when the government is competing with private enterprise for capital. when does it get too big? that is really an interesting issue. the peak in united states was 118% in 1946. of course, then for the next 20
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came down a lot. something similar but even more extreme happened in britain in 1815, the british were fighting the french from louis the 14th all the way up to fighting napoleon. the british and french were always fighting, the british borrowed a lot of money. they won all their wars but one, 1688. which one was it? the american revolution. that is the only war that britain lost in that proved hamilton's point that britain had good public credit, france did not. public credit is like an element of war. at the end of the napoleonic wars, the british had a debt to gdp ratio approximately 250%. the national debt of great britain was 2.5 times its gdp. if you were really worried about this, you'd say well, britain is
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in terrible trouble. but britain did the same thing the u.s. was doing. they then put a lid on spending the british economy grew. , the debt-gdp ratio throughout the 19th century, restraining their spending, they grew out of debt to gdp ratio. some people would say the best days of the british empire, the u.k. were in the 19th century, when they had this humongous debt ratio. that should not make us feel -- that should make us feel good. if our debt is up at 105%, if somehow we could bring about spending restraints, and hope that our economy might grow faster than the 2% that many economists are forecasting, then we don't have such a big problem.
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we can solve the problem. but coming back to your point, i don't think we seem to have a public awareness now, there is nobody pushing for doing something like this. and that maybe one of our problems, that we just allow this debt-financed spending binge to go on. because we like tax cuts and we like spending so the debt will just keep on growing. that is what hamilton warned us about. yes. >> to the gentleman's question about the culture, you may have just partially answered this, in 1992, ross perot ran one of the most successful third-party candidacies. and his two main platform items were trade and the debt. >> talking about giant sucking sounds.
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giant sucking sounds and big charts with the deficit picture, and the debt picture at the time was much less than it is now. the interesting thing about perot was he drew the country's attention to the issue of the debt. do you see any of that type of leadership anywhere? dr. sylla: you know, that may be the problem. this crowd is not the average american crowd, probably. but i think most people, if you told them what hamilton said, that we should responsibly manage debt, most people would agree. what we seem to be lacking is the leadership at the top levels. there is something called the concord coalition which worries a lot about pete peterson. when they started worrying about the rising debt in the financial crisis, krugman made fun of them. and krugman was sort of right. in the middle of a financial crisis, it is not right to worry about debt.
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but i think he was saying you never have to worry about debt. i think responsible leaders -- perot did not get elected. having clinton, he sort of agreed with newt gingrich. we will restrain spending and the economy grew and and debt gdp ratio went down. i don't see that working right now. we just had a tax cut. we are talking about a lot more spending for infrastructure, building walls or fences or whatever. >> [inaudible] dr. sylla: you need a mic. >> i have a question. you started your remarks by decrying the tax cuts. we know that hamilton did not know about the laffer curve. if he were alive today, and he knew about it, would he agree with you that cutting taxes and restoring private property to
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the american people at a time when gdp is historically near zero, has been zero for about eight years, would he agree with you that cutting taxes is not fiscally responsible? dr. sylla: hamilton? i think, i said at the beginning , answer that question at the first part of my talk. i said hamilton would not think it was fiscally responsible. to your point about the laffer curve, i think you are wrong. i think hamilton did have an idea about it. the government financed itself mostly by taxing imports. and hamilton was saying, some people accused him wrongly of being a protectionist. he was not a protectionist. he said i don't want those tariffs to go too high. because if you keep out the imports, you won't collect any revenue. so hamilton did have the laffer
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curve idea. you could put imports so high, the government has no imports and there would not be a revenue. he was very much aware of the laffer curve idea. but i think in general, i just assumed in my talk and i thought i persuaded you, but maybe i was not successful, that hamilton would agree that the last 50 years of fiscal policymaking is not very responsible. >> i think i might have an answer to the gentleman's question about what is unique to the culture of the last 50 years. >> good. i was hoping. >> instant gratification, lack of responsibility. i was one of the original hippies, so i am partially to blame. if you look at the last 50 years you have instant gratification, lack of responsibility, no savings. what is it, 1%, 2%? so that, my friend, i think is the cultural change that is endemic, baked into our society. what did the famous cartoon say?
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we have looked at the problem and it is us. dr. sylla: that is pogo. we have met the enemy and he is us. [laughter] >> instant gratification, we have no time tori about -- we have no time to worry about the national debt or the debt income ratio, because we are checking this all the time. where is the next? >> i just want to travel back in time to the beginning, 1790. can you talk briefly what were hamilton's rationale for the assumption of state debts of individual debt for this newly minted government? dr. sylla: you should buy this book coming out. [laughter] >> will do! dr. sylla: and read what he calls the defense of the funding system.
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historians have distorted -- pro-jefferson and madison historians have distorted this a lot by saying hamilton wanted to assume the state and national they would have a bigger national debt and therefore more people would hold their interest payments to the federal government and that would generate support for the government. hamilton in this defense of the funding system said this idea occurred to me, but it would not have been my main reason. what he really wanted to say was if you have the federal government and the state governments all with taxing authority, hamilton saw there could be collision between federal taxes and state taxes. and this could threaten holding the country together. because we did give the federal government the power to tax us directly and the states and local governments have the power to tax us directly.
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hamilton's solution was that both the state and federal governments could tax people and that could cause problems. the solution, cutting the knot, was to eliminate the need for states to have much in the way of taxes which you did by taking the state debt into the national debt. the country held together pretty well for the next two decades because state government didn't have to borrow much money. so when the federal government was raising revenue, the states were not mad at it. that was his big argument. eliminate the need for the states to have much taxes and they would not complain about the federal government having taxes. that was his argument. but it is like 20 or 30 pages of justification of his debt assumption thing and it was in this document that was never finished. but i read it carefully. it gives you -- if you are not persuaded it is good policy, you
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must be a victim of jefferson. [laughter] >> a good portion of that had to do with the american revolution, correct? dr. sylla: yes. next question. >> i am puzzled by your response that hamilton would have found tax cuts to be fiscally irresponsible given the fact there is another part of the equation, namely that if you cut back government expenditures, that would correlate with decreasing taxes. and that hamilton was an ardent defender of private property, and also that he thought that there should be limited government, that perhaps what government was making expenditures on was outside the purview of a properly limited government.
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so of today's expenditures, which do you think hamilton would advocate cutting? dr. sylla: you were surprised that i said hamilton would've thought tax cuts were fiscally irresponsible? you know, when you are running up expenditures as we are, and cutting taxes, that doesn't seem -- to me or to alexander hamilton, to be fiscally responsible. but your other part of your question is more about whether hamilton would've ever wanted to cut taxes? >> no, that is not my question. dr. sylla: oh. >> [inaudible] dr. sylla: i agree. the question is about the expenditures, what would hamilton think about expenditures. hamilton, some people say he wanted big government. that is not right. hamilton wanted a limited, but energetic government. and so, i think he wasn't against government expenditures.
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he wasn't for the libertarian view. he thought that we ought to have a national infrastructure program. actually his successor, jefferson's secretary of the treasury thought the same thing. there is a question of whether it was constitutional. hamilton thought we might need a constitutional amendment but he saw a lot of reasons for the federal government to build roads and canals and things like that. let's say it needed tautology, but hamilton was against frivolous expenditures. a lot of the things that he would look at that the federal government is doing today, he would say the federal government has no business doing that. we are not still financing inner-city, nighttime basketball at the federal level. but 10 or 20 years ago there was a program the federal government would pay to keep the lights on, so the kids would play basketball instead of doing less wholesome things. hamilton probably wouldn't have thought that was the federal
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responsibility to light the basketball courts. but the government was, of course, m\uch smaller. -- much smaller. the federal government spent more money in every year of u.s. history than all the states together did. but it was, for long time, it was 2%, 3% of the gdp, and now we are likely talking 20%. so the government was much more limited through most of our history. i think hamilton probably would have thought we were spending on essential things. i don't know what hamilton would have thought of medicare or something like that. that is something he just wouldn't anticipate, a national healthcare program. >> last question here. >> you spoke about 2% economic growth we are experiencing lately. but the former federal reserve chair, ben bernanke had a targeted deflation rate of 2%.
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doesn't that counteract the group gross we have been experiencing the past two decades? dr. sylla: so what is the question? >> if the inflation rate we are experiencing now cancel out the economic growth? dr. sylla: the question is about economic growth and inflation. the federal reserve talks a lot about a 2% inflation target. one of their worries -- they want to raise interest rates too fast because the inflation has been slightly less than 2% lately. but there is nominal gdp growth, which is basically real growth plus the inflationary. i personally don't like the 2% inflation target. there were a lot of periods in u.s. history where you had zero inflation or even a little bit of mild deflation and the world did not come to an end. the 2% inflation target is based on the experience of the 1930's, when there was really a bad deflation.
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the argument i have heard economists make -- i am one of them it is not my argument -- is if you target 2% inflation, you will be farther away from experiencing deflation. which of course is the worst thing in the world, but i don't think it's the worst thing in the world. another argument is that 2% inflation on 1% real growth will lead to higher level of interest rates. so if you get into a recession, the federal have more room to cut interest rates to get out of it. that is an argument they make. i and my friend, paul volcker, think the fed ought to target 0% inflation. that is not a bad thing. 2% apparently does not fool us, even though it cuts the value of our money in half in about 35 years or so. did i hear that was the last question? [applause]
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thank you. >> like it just have you stand to the side for second. . >> >> there are many authors and speakers. one of the things that the alexander hamilton awareness society wants to indicate his -- is who are those you can have a great scholarly -- that you can have faith and trust in. so we have a special award we would like to give to you. for your dedication to representing the accuracy of alexander hamilton's record to national and international organizations, to university students, and to the public. the purpose of this museum. the museum of american finance. as a mentor, you have been very patient with many people and very kind with your advice. very hamiltonion. so i just want to thank you. i want to read the award. "richard sylla is hereby
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recognized as a national hamilton scholar for exemplary scholarship, research and writing to provide accurate, objective, and insightful information to the public about the united states of america's remarkable founding father, alexander hamilton." the alexander hamilton awareness society 2018. we thank you for your decades of service. [applause] >> tonight at 10:00 p.m. eastern on american history tv "real america", the 50th anniversary of the kerner commission's re port. it was created by lyndon johnson in the wake of widespread rioting, civil disorders, and unrest in chicago, los angeles, , and detroitnewark is chronicled in "remedy for
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riot." r remedy for >> you can see and hear about that the indignity of being black and rich, white america. i paid more for my food, more for rent, more for everything. every time i come to town, you overcharge me for everything i get. not -- you are going to double charge me for that. you go out and see yourself rev people --hat is what make criminals out of people. you are not going to give them nothing -- just enough to keep to eat. i ate breakfast this morning, i do not know where dinner is coming from. how do you think i feel?
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and then you take all of this money and go there and see the japanese and everybody else in here at we have been here all my life long and cannot make it. >> this man's anguish is the real substance of the right nsmmissions -- riot commisio report. the most prevalent symptom is poverty. but the real trouble is color. the racial attitudes and behaviors of white americans towards black americans. watch real america tonight at 10:00 p.m. eastern on american history tv, c-span3. sunday on c-span's q and a, political magazine contributing about "building the great society" inside lyndon johnson's white house. exactly how an administration
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within the space of 4.5 years, five years, built all of these programs after they pass congress and signed them into law which is where the story normally ends -- how do they billed medicare and medicaid from the ground up in one year and create the first programs ,ike head start or food stamps nutritional programs for children, and how do they do this while desegregating one the country's hospitals and places of public accommodation -- and also fighting a war in vietnam. a, sunday night at 8:00 eastern. we are outside the santa fe train depot in shawnee, oklahoma , where c-span is learning more about the area's history. inside toe take you learn more about railroading impactsn


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